How to Grow Your Net Worth to $1 Million

It's great to have a big salary and a fat bank account balance. But if you dream of getting rich, it's your net worth that really counts. This figure encompasses all your assets minus the debts you owe. If you hope to end up with $1 million someday, you need to know where you're starting.

To calculate your net worth, make a list of everything you own, including the estimated value of each item. This includes things such as:

The market value of your home

Money in your bank accounts and investment accounts

The current value of your car

Retirement savings

Personal property

Add them together. Then, make a list of your debts — including the mortgage, student loans, car loans and credit card balances — and total that cost. Subtract the total value of your debts from the total value of your assets to find your net worth.

Now that you know your net worth, focus on growing it to $1 million. It might seem like a long shot right now, but follow these tips from savvy financial experts to make your dream of great wealth a reality.

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Manage Your Money Wisely

If you don't earn a sky-high salary, you probably think a net worth of $1 million is out of the question. But that's not true. Knowing how to work with what you have can make all the difference.

"Growing your net worth has little to do with your income and more to do with how you manage your money," said Kevin Michels, a certified financial planner (CFP) with Medicus Wealth Planning in Draper, Utah. "We have a few clients who never made a six-figure salary and have well over a $1 million net worth."

Understanding and optimizing your cash flow is the key to success, Michels said. Find the right balance between investing and paying off debt to make the most of your salary.

Your income might be significantly less than a friend earns. But if you live within your means and your friend doesn't, there's a strong chance your net worth will rise to $1 million faster — and stay there. Rather than becoming discouraged by a salary that's lower than you'd like, learn to better allocate your funds.

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Acquire the Right Assets

Crystal Stranger is an enrolled agent and president of 1st Tax, a nationwide tax firm that serves small businesses. She sees the tax returns of thousands of people each year, and she said there are many ways people accumulate $1 million in net worth.

However, none is easier or more automatic than buying real estate, she said. "All you need to do is buy $1 million worth of rental property that rents for at least (a) break-even amount, and let the tenants pay it off over a 30-year period," she said.

The number of properties you will need to buy largely depends on your income and the cost of housing in your area, Stranger said. If you're trying to figure out how to increase your net worth to $1 million, she advised real estate investing as a realistic way to do it. "Plus, real estate is a relatively good hedge for inflation and source of income into retirement," Stranger said.

Of course, real estate isn't for everyone. Other assets that can help increase your net worth include investments, business interests and personal property such as jewelry or art.

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Reduce or Completely Eliminate Debt

Most Americans repay their debts in the wrong way, said Greg Knight, a certified financial planner and founder of Engage Advising in Oakland, Calif. "For example, if you have three credit cards with minimum balance payments, many people round up each minimum payment," he said.

Knight said to stop doing this and instead make extra payments on the card with the highest interest rate. When that card is paid off, he advised applying the money you once used for the payment on that card — plus any extra money you can spare — to the next card, and so on.

A fee-only certified financial planner should be able to run a payment plan for you and calculate the amount of money saved in interest, and how quickly you'll be able to pay off the debt, Knight said. "This method usually yields a substantial savings in interest, and pays off the debt faster," he said.

Not owning a car is another savvy way to reduce your expenses. Consider this if you live in an urban area with reliable public transportation. If you must own a car, opt for a used car, Knight said. He urged used car shoppers to get a report of a vehicle's history from Carfax. Doing so can help ensure you don't buy a lemon.

"A well-priced used car in excellent condition will save you in sales tax, registration fees and insurance," Knight said. "It could be a lower payment than a new car as well, depending on your down payment and financing arrangement."

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Pay Yourself First

Knight said paying yourself first needs to become your golden rule if you plan to build a net worth of $1 million. As soon as you start earning money, allocate some of it to savings. You must learn to save, and to build a cash reserve that can be harvested periodically to pay down debt or invest, he said.

Knight recommended saving either a specific percentage of your paycheck or a specific dollar amount and always adhering to that plan. Your early goal should be to create a cash reserve and a retirement account, and to pay down debt, he said.

"If you are single, you should target six to nine months of cash to cover total monthly expenses," Knight said. "If you are a couple with two incomes and shared finances, you should keep three to six months (worth of) cash reserve of total monthly expenses. Once you exceed these amounts, you can then use your cash reserve as part of your investment portfolio or to pay down debt."

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Invest Your Money Wisely

Sharon Marchisello — author of the personal finance e-book "Live Cheaply, Be Happy, Grow Wealthy" — and her husband grew the couple's net worth to more than $3 million while holding jobs with five-figure salaries. Careful investing was a factor in their financial success.

"If you don't invest, your money probably will not keep up with inflation," Marchisello said. She recommended starting with a no-load mutual fund that invests in an index, such as the S&P 500 or the total stock market. Stock choices should be based on your age and risk tolerance, Marchisello said.

Thoroughly researching your investments is a must, she said, as anything else is just gambling. Returns will vary by the performance of your selected stocks and the amount you invest.

If you don't understand the stock market, seek assistance before making a purchase. Part of knowing how to increase your net worth is being open to guidance along the way.

Develop Good Money Habits

Wondering how to increase your net worth? Knowing how to handle money is the key. As someone who grew her net worth to more than $3 million without a six-figure income, Marchisello knows a thing or two about good money habits.

Living within your means and eliminating expenses that don't add value to your life will help you get ahead, she said. One major way to do this is to keep housing expenses to around 30 percent of your income. Choosing a car you can afford and keeping extras — such as dinners out, vacations and designer clothing — to a minimum also play a huge role in succeeding financially.

Always pay your bills on time, Marchisello said. Late fees can add up fast, so if you tend to miss deadlines, enroll in autopay.

She also noted the importance of starting a retirement savings account as early as possible and paying yourself first. Developing healthy money habits will involve a period of transition at first, but it will become second nature in no time.

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Seek Assistance From a Financial Professional

Not everyone excels at finance, and that's OK. If money matters aren't your thing, learn how to increase your net worth to $1 million by working with an expert.

"If a person or family does not have an understanding or does not have time to take care of their finances, seek professional help from a financial advisor, preferably a credentialed financial advisor such as a CFP," said Scott Smith, a certified financial planner, principal and senior advisor at Olympia Ridge Personal Financial Advisors in Rochester Hills, Mich.

A financial professional can help you calculate your net worth and create a strategy to work your way up to the $1 million mark. Having the steps outlined in front of you will make your goal feel more realistic.

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Earn Income on the Side

Smith said finding a "side hustle" can help you earn more income. Whether your salary isn't as high as you'd like or you want to monetize some of your free time, taking on a side gig will get your net worth closer to a $1 million. Find your best fit, as there are many ways to earn extra cash.

For example, if you're a teacher, consider tutoring in the evenings and teaching summer school. You won't have as much free time as your colleagues, but the sacrifice will improve your financial health.

If you don't have time for a steady part-time gig, there are plenty of ways to earn extra cash when it fits your schedule. House-sit for friends, become a tasker for TaskRabbit or get paid to answer online surveys. You can even sign up for Ebates to get cash back every time you shop online, which can add up fast.

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Maximize Your Retirement Savings

Even if your retirement is decades away, putting money aside now is a smart way to increase your net worth. The average employee defers 6.8 percent of his income to a retirement account, but 20 percent defer more than 10 percent, according to Vanguard's "How America Saves 2016" report.

Many companies offer a program to match your contributions up to a certain percentage. Such contributions can help your nest egg grow fast. Maximizing these contributions is a must, said Paul Jacobs, an Atlanta-based certified financial planner, enrolled agent and chief investment officer of Palisades Hudson Financial Group.

"If your employer offers matching contributions and you don't take advantage of it, you're effectively leaving money on the table," he said. "If you're looking to invest for retirement, it's important to set aside as much as possible."

If you change jobs, Jacobs recommends rolling over your balance into your new company's plan instead of cashing out, or leaving the money in your old plan. "Many people cash out their 401ks when they leave their job, and end up being hit with a double whammy," he said. "In addition to having to pay income tax on the cash, the funds can also be subject to a 10 percent penalty."

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